Institutional Bias

In a perfect economy, current and future costs and benefits of such adjustments would be assessed and communicated. Optimal activities could be calculated. And if important assets were jeopardized, institutions would encourage solutions that carefully weighed all of society's interests. Obviously, this is not our world. Ours are imperfect economies with biased institutions‹a concept that requires further consideration here.

Competitive markets and good policies play an important role in assessing, communicating and protecting the values of society's productive assets--in some sense, representing those assets and those people whose livelihood the assets support. Some social scientists observe, however, that the performance of these institutions is biased.⁷⁵ Each institution favors some assets, while failing to protect others. There are several reasons for this bias. Information about values of some types of assets, present and future, is incomplete or unavailable. Also, the structures of institutions often allow them to deal more effectively with some types of assets than with others. And each institution can be used by groups within society whom that structure primarily serves. "Institutions," economist Douglass North points out, "are not necessarily...created to be socially efficient; rather they...are created to serve the interests of those with the bargaining power to devise new rules."⁷⁶

For example, the marketplace provides opportunities to satisfy needs, express wants and to use one's talents. But it favors consumers with cash or good credit, and producers with access to capital and political influence. Competitive markets often discriminate against small firms, even when these are innovative. High interest rates tend to favor assets that produce short-term profits over those that require lengthy periods of investment, although the latter may ultimately prove more socially and economically beneficial. Lack of quality in government health and school facilities does not affect the elite and middle classes who are able to pay privately for those services. The best legal representation goes, as well, to the wealthy. Good policies can make corrections, but even well-intentioned government intrusions into the marketplace can distort pricing and lower economic incentives. And policies are just as the word infers: political and subject to the interests and ideologies of those in power. Modern democracies, though vast improvements over totalitarian regimes, have not succeeded in freeing their institutions from these influences. Public expenditures should counter trends that discriminate against the poor, but fall short, often despite good intentions.⁷⁷

These distortions and exclusions leave a discernible trail across the social science literature. Each discipline uses its own terms to describe situations where institutions are ineffective or inaccessible. For anthropologists, the poor and politically powerless are marginalized‹pushed to the margins of economic and government concern. Accordingly, the hundreds of millions in this category are forced to rely on meager, uncertain sources of income, and are driven to avoid risk rather than to secure profit.78 Lacking purchasing power, information and capital, the marginalized live outside the core of commerce and choice. They tend to be underrepresented in government, ignorant of their rights and obstructed from exercising them, with limited access to legal means of protecting property.⁷⁹

In addition, political scientists and sociologists point to what they call an informal economy‹in some developing countries comprising over 40 percent of the total economic activity‹that operates outside of the policies that regulate formal markets, protect the health and rights of laborers, and levy taxes.⁸⁰ In the pursuit of policies for sustainable development, environmental economists are concerned about future generations. These too are agents outside the scope of institutions who are unable to influence government or affect market transactions determining the fate of assets that may or may not be passed down to them. In addition, environmental economists report that basic environmental services go unpriced or underpriced.⁸¹ And because species and ecosystems are not human, they are intrinsically underrepresented in government and in courtrooms.⁸² Human, natural and physical assets outside borders generally suffer a similar lack of representation, or are not considered in decisions because of restricted flows of information.

Bias occurs when institutions selectively ignore costs. Ignoring costs is easiest when losses affect assets to which those institutions have not assigned a high relative value. In the market place, valuation is achieved through pricing. Undervalued assets are left unpriced or priced below their realistic worth to society. In policy and matters of property rights, value is associated with political representation. Those lacking a political voice have little impact on how government programs develop or deplete their assets, or how well the legal system protects them from costs that spill over onto their assets during others' transactions.

In countries attempting to accommodate population growth, institutional bias assumes an important role. If an institution can ignore costs incurred during each growth-related transaction, there is a perceived increase in the benefit-to-cost ratio for those activities. Thus encouraged, transactions proceed. Adjustment to a larger, denser population occurs, although these adjustments may be unwise and ultimately harmful to important assets.

Spillover costs from such a process are likely to erode the assets and prospects of the poor and powerless, and to deplete the services the environment offers to economies. Where essential assets are irreparably damaged, affordable replacement technologies must be substituted. Such a selective process tends to act divisively, promoting economic growth on one hand, while widening the economic and environmental disparities of a nation on the other.

Biologist Robert May hypothesizes that such a selective process is undermining health and local environments.⁸³ He calls attention to a 20th century trend toward accommodating population and per capita income growth through highly productive technological substitutes for natural assets, such as synthetic fertilization, aquaculture, hydropower and irrigation systems. Each substitute solves an immediate and pressing problem. But each increases long-term health risks and requires incremental sacrifices in environmental quality and biodiversity. May fears a slow and steady accommodation to population growth over the next few centuries, increasingly sacrificing the natural world to successfully adjust to the expanding human one, leading to what he calls the 'Blade Runner Scenario' (after a futuristic film set in bleak and lawless 21st century Los Angeles). As in the film, people in future generations might live long and even physically healthy lives in functional but spiritless human systems, devoid of natural diversity and the goods and services the replaced ecosystems once supplied. Born into these systems, people might live completely unaware of the natural world's former splendor and the quality of life it once supported at virtually no cost.

In the short term, there may appear to be little or no alternative to these substitutions and similar adjustments, regardless of the long-term consequences. Over the long term, however, there is little doubt that the necessity for these high-cost institutional adjustments would ease as population size approached relative stability.